California lawmakers reached a compromise Friday on legislation to regulate how the state's data-center industry buys electricity, capping a session in which community anger over utility bills collided with a lobbying campaign from Google, Meta, Amazon, Anthropic and OpenAI. [1] The deal requires the California Public Utilities Commission to set special electricity rates for data centers and forces the facilities to pay upfront for the grid upgrades their power demand requires. It also does something the bill summaries do not emphasize: it lets a utility sign its own interim agreement with an individual data center before the CPUC's rules exist at all — a provision one advocate called "concerning." [1]
The compromise resolves a fight this paper covered Thursday as Big Tech's 11th-hour lobbying push to blunt Sacramento's regulatory reach. That lobbying did not stop the bills. It shaped what survived inside them.
State Sen. Steve Padilla's SB 886, sponsored by the ratepayer advocacy group TURN, forms the backbone of the deal. It requires data centers to pay up front for the broader power-grid upgrades their demand triggers — TURN cited a California grid-operator transmission plan projecting up to $1.8 billion in upgrade costs concentrated in PG&E's service territory, where most current and proposed data centers sit. [1] A companion measure from Assemblymember Rick Chavez Zbur requires the CPUC to create special electricity rate structures and updated rules for how data centers pay for power, rather than leaving those costs to be spread across all ratepayers. [1]
Matthew Freedman, a senior staff attorney at TURN, praised the final language for preventing data-center costs from "being foisted on other customers" while advancing the state's clean-energy goals. [1] Monica Embrey, founder of the Affordable Energy Campaign, offered a sharper assessment. She flagged two last-minute amendments: the absence of any clean-energy requirement for data centers that generate their own power, and the provision allowing a utility to strike its own agreement with a data center for electricity during the interim period before the CPUC finalizes statewide rules. She called the amendments "concerning." [1] PG&E, which favored the less stringent approach throughout negotiations, argued in an email this week that the stricter SB 886 language would "risk higher costs for customers and delay critical infrastructure needed to serve the state's growing energy demand." [1]
The distinction matters because of who actually builds data centers in California and where. Unlike Texas or Virginia, California has not seen an overwhelming wave of large-scale AI facilities, and most of the state's centers run under 100 megawatts — small by the standards of the 500-plus-megawatt campuses rising elsewhere, constrained by high electricity costs, expensive land and state rules on gas-powered backup generators. [1] That relative scarcity is precisely why the interim-agreement carve-out carries weight: with statewide rate rules still unwritten, a utility eager to land a marquee data-center customer now has a window to negotiate bespoke terms before the CPUC — the body designed to referee exactly that kind of deal — has set the ground rules everyone else must follow.
PG&E's own numbers illustrate the stakes. The utility's territory hosts the majority of California's existing and proposed data centers, and the same grid-operator transmission plan TURN cited projects up to $1.8 billion in transmission upgrades driven by that demand. [1] SB 886's up-front payment requirement is designed to keep that bill off the shoulders of residential ratepayers. A side deal struck before the CPUC's cost-allocation rules exist raises the question of whether an early, favored data-center customer could lock in terms more generous than what the eventual statewide framework would allow — and whether other ratepayers would be protected from covering the difference.
Opposition to the industry has been building steadily and locally rather than through Sacramento. Monterey Park voters permanently banned data centers by ballot measure in June, the first city in the country to do so, and at least four other San Gabriel Valley cities have enacted moratoriums since. [1] Imperial County, Desert Hot Springs and Palm Springs have voted on their own moratoriums; Coachella banned the facilities outright; Tulare County adopted a moratorium this month after residents objected to proposals for data centers on local fairgrounds. [1] A Public Policy Institute of California poll from July found 73 percent of residents oppose data centers being built in their communities, citing water use, air and noise pollution, and the risk that grid upgrades needed to serve the facilities raise everyone's utility bills. [1] The California Energy Commission expects data-center electricity demand, currently 2 percent of the state's total, to double within a decade. [1]
The industry pushed back on both bills as unfairly "singling out" one class of power user, in the words of Khara Boender, a director of government affairs at the Data Center Coalition, whose members include Google and Microsoft. [1] Boender argued this week that additional regulation "would be another signal that the state is a more challenging place for data center development," pointing out that dozens of other states offer data centers some kind of exemption that California does not. [1] The coalition did not immediately respond to a request for comment on the final compromise language. [1]
Sen. Padilla's own district includes Imperial Valley, where a developer's plan for a 75-acre data center has stirred fierce local backlash — the same tension between jobs-and-tax-revenue arguments and utility-bill fears that has played out across the state all year. Assemblymember Diane Papan, whose Silicon Valley-area district sits at the center of the industry's growth, said she wants lawmakers to work with data centers rather than ban them outright: "I constantly say, 'Help us help you.' We will all get this right if we can just be transparent and methodical." [1] Papan's own disclosure bill, which would have required data centers to certify their water use, was vetoed by Gov. Gavin Newsom last year over concerns about "rigid" reporting mandates; separate water- and energy-disclosure requirements were approved by lawmakers this week in a narrower form. [1]
Gov. Newsom's own posture on data centers has been tested repeatedly this year, and Friday's deal is the latest instance of a pattern in which his administration has sided with industry on disclosure while allowing the Legislature to take the lead on cost allocation. [1] That division of labor matters for the interim-agreement carve-out specifically: the CPUC, the body empowered to write the statewide rate rules SB 886 requires, is itself governed by a board the governor appoints. A utility negotiating directly with a data center in the gap before those rules exist is, in effect, negotiating in a space the governor's own appointees have not yet filled — raising the question of how much daylight will actually separate an "interim" agreement from the eventual statewide framework once the CPUC finally writes it.
Business groups made a version of that same argument from the opposite direction throughout the summer's negotiations, warning that California's structural disadvantages — its highest-in-the-nation energy costs, its scarcity of available industrial land, and now added compliance requirements — would push the next wave of AI infrastructure investment toward states actively competing for it with exemptions California declined to offer. Municipalities that had courted data centers for their promised tax base and construction jobs risk losing that revenue to whichever state makes the friendliest offer, industry representatives argued, even as local voters in places like Monterey Park voted to foreclose the possibility entirely rather than negotiate terms. [1] That gap between what local voters want and what local governments' budgets need is the same tension the interim carve-out threatens to resolve quietly, deal by deal, before the state ever settles it as policy.
What the finalized deal does not resolve is whether the interim carve-out becomes the mechanism by which the industry's most sophisticated players — the ones with the lawyers and lobbyists to negotiate directly with a utility — end up setting the terms the CPUC's eventual statewide framework has to accommodate rather than the other way around. Embrey's warning was one sentence in a story about a legislative win. Whether it becomes the fight of next year's session depends on whether a utility moves to use the window before regulators close it.
The Data Center Coalition's silence on the finalized language is itself worth noting. Boender's public objections this week focused on the bills as a package "singling out" one industry; the coalition, whose members include Google and Microsoft, did not respond to a request for comment specifically on the carve-out that survived negotiations in its favor. [1] That silence could reflect satisfaction with a provision that gives its members exactly the flexibility Embrey warned about, or simple caution about commenting on legislative language before the governor has signed it. Either reading leaves the same open question for Sacramento's next session: once a utility and a data center strike their first interim agreement under this carve-out, will it function as a one-time bridge to statewide rules, or as the template those rules end up matching.
-- SAMUEL CRANE, Washington